Gillen v. Maryland Nat. Bank

• Decision Date: 04 March 1975
• Docket Number: No. 106,106
• Citation: 274 Md. 96,333 A.2d 329
• Parties: , 16 UCC Rep.Serv. 1067 Elizabeth Appel GILLEN et al., as successors in Interest to John F. C. Appel v. MARYLAND NATIONAL BANK et al.
• Court: Maryland Court of Appeals

Page 96

274 Md. 96

333 A.2d 329, 16 UCC Rep.Serv. 1067

Elizabeth Appel GILLEN et al., as successors in Interest to

John F. C. Appel v. MARYLAND NATIONAL BANK et al.

No. 106.

Court of Appeals of Maryland.

March 4, 1975.

William S. Little, Baltimore (Alexander Stark, Baltimore, on the brief), for appellants.

Thomas C. Beach, III, Baltimore (Walter E. Black, Jr. and Clapp, Somerville, Black & Honemann, Baltimore, on the brief), for Maryland National Bank.

John C. Griffin, Baltimore (Richard W. Kiefer and Hooper, Kiefer, Cornell & O'Ferrall, Baltimore on the brief) for Equitable Trust Company.

Argued before MURPHY, C. J., and SMITH, LEVINE, ELDRIDGE and O'DONNELL, JJ.

MURPHY, Chief Judge.

Elizabeth Gillen, et al., as successors in interest to John F. C. Appel who died October 23, 1972 (the appellants), appeal from judgments entered by the Court of Common Pleas of Baltimore City in favor of Maryland National Bank and Equitable Trust Company. The controversy arose from two separate but related transactions: the unauthorized withdrawal of $7,200 from Appel's savings account with Maryland National by means of a forged withdrawal slip, and the collection and payment of Maryland National's cashier's check upon the payee's forged endorsement.

The pertinent facts are these: Appel opened a savings account with Maryland National in 1966. The account was in his name, in trust for himself and Elizabeth Gillen, as joint owners, subject to the order of either, the balance at the death of their to belong to the survivor. Appel retained possession of the passbook, which contained a number of rules and regulations pertaining to the rights and obligations of the depositor and the bank, including the following:

'Possession of the Passbook may be treated by the Bank as sufficient evidence of ownership thereof to authorize the payment of money due thereon. The Bank will endeavor to prevent fraud on its depositors, yet all the payments made by the Bank to any person producing the Passbook shall be valid as agaisnt the depositor and a full and effectual release thereof to the Bank, unless and until the Bank shall have received from the depositor written notice not to make such payment.'

'The acceptance of the Passbook shall constitute an acknowledgement on the part of the depositor of notice of these Rules and Regulations and his agreement to be bound thereby.'

On April 27, 1970, Randolph White Via appeared at the southern branch of Maryland National, where Appel maintained his savings account; Via had Appel's passbook in his possession, together with an 'off-the-premises' withdrawal slip, containing Appel's forged signature authorizing a $7,200 withdrawal payable to Appel's order or to bearer. Comparing the signature on the withdrawal slip with the signature on Appel's signature card, the teller determined that they were identical. Via explained to the teller and to the branch manager that Appel owed him the money for repairs which he had completed on Appel's home. With the approval of the branch manager, Via was given Maryland National's cashier's check for $7,200 payable to Appel's order.

Via forged Appel's endorsement on the check and the next day delivered the check to Len Cavanaugh, who endorsed it in the name of his business, Len's Tavern and Restaurant, Inc., and deposited it in his account with Equitable. At the same time, Cavanaugh drew a $7,200 check on his Equitable account, payable to cash. Equitable cashed the check and Cavanaugh delivered the money to Via. Equitable endorsed Maryland National's cashier's check and forwarded it for payment. Maryland National paid the item on April 29. Thereafter, Appel discovered that his Maryland National passbook had been stolen and, on May 5, 1970, he executed an affidavit that he had not endorsed the cashier's check or received the check. Maryland National then sought reimbursement of the $7,200 from Equitable, which declined to make payment.

On June 1, 1972, Appel sued Maryland National for $7,200 damages with interest by a declaration containing two counts, both sounding in contract. The first count was '(f)or money found to be due from the Defendant to the Plaintiff on accounts stated between them'; the second count alleged that 'on or about April 28, 1970 the Plaintiff had on deposit with the Defendant in a savings account the sum of . . . $7,200.00 and that the Defendant has failed to pay this sum unto the Plaintiff despite numerous demands therefor.' In response to Maryland National's request for particulars, Appel stated that the second count was 'a further explanation of the general count No. One.' Maryland National answered with general issue pleas and a special plea asserting the defense of release. It also filed a third party claim agaisnt Equitable, asserting the letter's warranty of good title to and guaranty of prior endorsements on the cashier's check. Appel thereafter sued Equitable, claiming $7,200 with interest, (1) for money received by Equitable for Appel's use, (2) because Equitable guaranteed prior endorsements on the forged cashier's check, and (3) '(t)hat said check was accepted under circumstances in which . . . Equitable . . . knew or should have known that the transaction was improper, fraudulent and/or illegal.' Equitable answered with general issue pleas.

Two days before the trial in November 1973-approximately three and a half years after payment of the cashier's check-the appellants sought to amend their declarations by adding a count for conversion based upon Maryland Code (1964 Repl.Vol.) Art. 95B, § 3-419 of the Uniform Commercial Code; ¹ specifically, it was alleged that 'the Defendants did wrongfully convert to their use monies that were and are the property of the Plaintiff.' Both Maryland National and Equitable objected, in motions ne recipiatur, claiming that the original declarations sounded only in contract and that the count for conversion sought to be added sounded in tort and constituted a new cause of action under a different theory of law which was barred by the three-year statute of limitations. The court granted the motions ne recipiatur denied appellants' petition to amend, and ordered the consolidated cases to proceed to trial on the original counts of the declarations.

Following an evidentiary hearing, the court (Cole, J. sitting without a jury) concluded, contrary to appellants' principal contention at the trial, that Maryland National had exercised ordinary care and hence had not been negligent in issuing the cashier's check. In so holding, the court noted that Via had the passbook in his possession, that the signatures on the withdrawal slip and the signature card compared favorably, and that Maryland National had made the check payable to Appel, rather than to bearer. The court said that there was no obligation on Maryland National's part to make a telephone call or send a messenger to Appel's house to verify the validity of the transaction. As to the alleged conversion of the instrument, the court said that the claim failed for 'want of proper pleading.' The appeal here follows the entry of judgments in favor of Maryland National and Equitable upon the court's finding that neither was liable for Appel's loss.

The relationship between a savings bank and a depositor is a contractual one, of which the rules and regulations of the passbook are a part. Hileman v. Hulver, 243 Md. 527, 221 A.2d 693 (1966); Savings Bank v. Appler, 151 Md. 571, 135 A. 373 (1926). Implicit in the contract is the duty of the bank to use ordinary care in disbursing the depositor's funds. Commonwealth Bank v. Goodman, 128 Md. 452, 97 A. 1005 (1916). The duty cannot be abrogated by agreement. Code (1964 Repl.Vol.) Art. 95B, §§ 1-102(3), 4-103. Thus, a depositor may sue in an action for breach of contract to enforce the bank's contractual obligation to use ordinary care. Commonwealth Bank v. Goodman, supra. See also Taylor v. Equitable Trust Co., 269 Md. 149, 304 A.2d 838 (1973).

Appellants contend on appeal, as they did below, that Maryland National did not exercise ordinary care in allowing the withdrawal of funds from Appel's account; they rely upon Commonwealth Bank v. Goodman, supra. In that case, the plaintiff Goodman authorized Edith Webb, the 15-year-old daughter of friends with whom he was living, to open an account for him with the bank. Goodman's signature on the signature card consisted of his mark, witnessed by Edith. Edith retained possession of the passbook, and, from time to time, Goodman would give her checks and money to deposit. On those occasions when he wished to withdraw money, Goodman would always be accompanied by Edith. Edith, however, made unauthorized withdrawals by forging Goodman's mark and witnessing the forgery. Upon discovering the unauthorized withdrawals, Goodman sued upon his contract with the bank. On an appeal from a judgment in Goodman favor, our predecessors noted that the bankbook issued to Goodman contained rules and regulations constituting his contract with the bank; that, pursuant thereto, it was provided (as in the instant case) that possession of the bankbook would be sufficient evidence of ownership and that payments made to any person producing the bankbook would be valid as against the depositor; and that such regulations were necessary for the protection of the bank. The Court stated that, notwithstanding such rules and regulations, the bank was contractually bound to exercise ordinary care in disbursing a depositor's funds. Citing text authority with approval, the Court said that the only rule to which savings banks could be safely held in determining what constituted a negligent payment of a depositor's funds was the rule of ordinary care, to be applied in the light of the special circumstances that characterize each separate case; that the question of due care and diligence on the part of the bank is one of fact for the jury if the evidence is conflicting, and one of law if the...